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TransCanada gets key to Keystone Fending off strong opposition from cadre of Canada’s gas producers, pipeliner gets green light from NEB to convert 530 miles of gas mainline in Prairies to take oil sands production to Illinois Gary Park For Petroleum News
Chalk one up for TransCanada which fended off opposition from a large segment of Canada’s natural gas producers in gaining National Energy Board approval to convert 530 miles of its gas mainline in the Prairies to carry oil sands production to Illinois.
The federal regulator’s decision gives a hefty push forward to TransCanada’s US$2.1 billion Keystone project, which is being designed to transport 435,000 barrels per day over 1,835 miles from Hardisty in Alberta to the Patoka/Wood River refinery region in Illinois as a possible stepping stone to Cushing, Okla.
So far Keystone is backed by shipping contracts averaging 18 years and totaling 340,000 bpd for a project expected to start construction within about 12 months and start commercial operations in the final quarter of 2009.
The NEB deemed the removal of the gas line in Saskatchewan and Manitoba to be in the “public interest” at a time when the pace of oil sands growth has “fundamentally transformed” Canada’s oil sector.
It said high oil prices coupled with technological advances have made oil sands extraction “economically possible, but, among other challenges, this strong growth has led to stress on the pipeline sector.”
“It has become clear that, to facilitate market efficiency, more crude oil pipeline capacity is needed to provide new market access for growing oil sands output,” the board said.
Conversion had strong Suncor support The gas line conversion had strong support from oil sands powerhouse Suncor Energy, which said that if Keystone misses its 2009 start-up date “Western Canadian crude oil will be stranded.”
On the other side of the fence, EnCana, BP Canada Energy, Devon Canada, Nexen and Shell Canada were among producers in a group challenging TransCanada’s forecasts of throughput on its mainline, arguing the loss of gas transportation capacity could cut into gas producers’ revenues.
TransCanada Chief Executive Officer Hal Kvisle welcomed the NEB’s support for an “innovative and cost-competitive solution” to link growing Canadian crude supplies with rising North American demand.
“By converting a small segment of our extensive natural gas system to crude oil transmission service, we will maximize the use of an existing asset and still maintain sufficient capacity on our Canadian mainline system to service forecasted customer demand,” he said.
TransCanada told the NEB hearings a throughput base case scenario tied to average annual gas flows indicated there could be surplus capacity on the mainline of 1.6 billion to 2.6 billion cubic feet per day over a 10-year period as Western Canada’s volumes go into decline.
The NEB said TransCanada had satisfied it that even with the removal of the gas service there would be sufficient capacity to handle current and projected needs.
With the major Keystone obstacle out of the way, TransCanada has an edge over rival Enbridge, which recently got industry backing for its US$2 billion Alberta Clipper project from Hardisty to Superior, Wis. That system is scheduled to start service by late 2009 or mid-2010, with initial capacity of 450,000 bpd.
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